Research desk explains: What is the CLASS Act?

By Dylan Matthews

Patrick_M asks:

What is the truth about the CLASS Act?

Before I get into the debate over the CLASS Act, I should explain what it is. The Community Living Assistance Services and Supports Act is a provision of health care reform that sets up an insurance system for long-term care for the disabled and elderly. This can include home care, nursing home payments and so forth. The act is intended to be self-financing, with an average monthly premium of $123, and an average daily benefit of $75. What premiums do not cover would be made up for in decreased Medicaid spending, as that program has covered many of these same treatments in the past.

The Congressional Budget Office estimates (pdf) that the act would reduce the deficit by $72.5 billion through 2019. That said, the CBO also warns that after 2020, costs will start to outstrip premiums by enough to add to the deficit in the long term more than it subtracts from it in the short run. The CBO notes, however, that the Department of Health and Human Services has wide latitude in changing premiums and average benefits, which could keep the program solvent.

The problem is one of adverse selection. The CBO is concerned that not enough healthy people, receiving under the $75 a day average, would enroll in the plan, which would limit the number of people paying more than they're getting out. To make up for that, either premiums would have to rise, benefits would have to fall, or the government would have to start financing the act out of general tax revenue.As one would imagine, this problem has provoked some disputes about the merits of the bill. Bruce Riedl of the Heritage Foundation argues that this shortfall sets the CLASS Act up for a future bailout, as future revenue increases become politically unpalatable. But as Howard Gleckman responds, some simple changes to the Act could drive prices way down. The Affordable Care Act addresses adverse selection by requiring coverage; doing the same with long-term health insurance could push premiums all the way down to $40 a month.

Helpfully, the SCAN Foundation has created a Web applet that allows you to design your own version of the CLASS Act and see what the effect on the budget deficit, coverage of the disabled, premiums, and so forth would be. You can specify how much of the plan you want to fund through premiums, what subsidies you want the poor to receive, what average benefit you prefer and more. It's the sort of thing I wish existed for every Research Desk question, so check it out, play around and settle on your ideal proposal.

Congressional Budget Office - Insurance - Health - Health care - Medicaid